International & European Trade Law Notes PDF

INTERNATIONAL AND EUROPEAN TRADE LAW Lecture 1 First assignment : 14th March ta 10.00 2 open questions , 40 min to answer both. State the more important issues and provide some reasoning. Pw : INTLAW24 What is international law? International law is an independent legal order with respect to State legal order. It has its own legal persons. The legal persons according to the Italian legal order for instance are the persons : private, physical, entities, juridic, public persons, etc. The international legal persons are not the same, it depends if we are dealing with private or public international law. What are the sources of law? Domestic sources of law : the constitution, the civil code, administrative acts International law : different sources from those. Also the systems of assessing international responsibility are different. We have the International legal order and the State legal order, and we have private persons. Public international law is the yellow circle in the slide. The difference between domestic private and private international law ? → public international law concerns specific situations that involve different countries' legal orders. Private international law focuses on legal agreements between private parties across different countries, while public international law governs relations between states. It deals with jurisdiction and applicable law in cross-border disputes. International law: For private international law: Criteria: State of residence. Look at the country's rules of private international law. It is a type of private law that changes country by country. It depends on the rules of each state. So this is not international law, but it just involves people from different countries. These are used to decide which legal system will be applied. For public international law: This is the subject matter of the course is public international law. An independent legal order has its own legal persons. The legal persons in public international law are : States. International law was created in the 17th century when some states had the absolute powers in Europe. These states decided to spread around the world and met each other and they had to decide which law should be applicable among them. International law found common rules for these cases. The first rules regulated the relationships between states. 100 years ago new entities such as International Organizations started to appear. (UN , WTO, EU). The origin of these organizations is the result of a treaty (constitutive treaty). Since it was the States who made treaties, are international organizations independent in respect to States? Or are these depending on the States and do not have their legal personalities? They are independent. The resolutions coming from the organizations are binding, therefore they have effective powers. Mentioning the Bernadotte case. He was an officer of the UN in Palestine in 1948. At the time Palestine was under the control of the UK. He was murdered and the UN asked the UK to provide information about the case. The UK refused as they did not recognize the legitimacy of the UN, only Sweden (his country of origin) could ask for that information. But as he was sent there from the UN, they got the right to ask. Years later in the US there was the McCarthy Period. He asked to check if some people were involved in spying activities. Among them, two US nationals, working as UN officers. The US wanted to arrest these people but the UN objected as they were working in the name of the UN. Are private persons subjected to international law? They are, but in a very limited space: International criminal law, if accused for instance of genocide, torture, intentional destruction of cultural heritage, etc. In some cases some persons have been incriminated by the international systems (example: Milosevich). When we talk about private persons such as companies, they are not directly subjected to international law. They can be, through the Member State. To whom WTO law apply? The legal persons involved are states although the victims are private persons. So if you are a small company you cannot really rely on WTO law as you have little influence in your country to ask him to intervene for you. SOURCES OF LAW : According to public international law, the first source of law is customary law. 1) Customary law is a set of non written rules. In order to have it, you need some elements: diuturnitas → repetition of a conduct (that seems to be the right conduct) opinio juris → assumption that it is an obligation Customary laws are binding for everyone, even for states that didn’t exist at the time of the origin of the law. Is the prohibition of torture a customary rule? Yes , if there is a repeated ban for torture and this is considered an obligation. Customary norms are very few, very general. They must be applied to all states, as opposite to the treaty generated law, which applies only to the states participating. A claim can be carried out in defence of "what has always been done and accepted by law". 2) Treaties are like contracts between States. These are the result of agreement of at least two states (bilateral for two, multilateral if with more parties). They can be called treaties, pacts, conventions, agreements. They can be written or oral. A treaty is only binding for its parties. As for instance the prohibition of torture is an agreement, it is only binding for the parties agreeing. If it is a customary law is binding for all States. It is possible to incorporate a customary law in a treaty. In this case the customary law becomes more specific (specific provisions) and less generic. The treaty becomes binding at the time of ratification. Ratification defines the international act whereby a state indicates its consent to be bound to a treaty. So we have the negotiation phase, then the countries sign the treaty. The treaty becomes binding when we have the ratification as an individual act. This act has an immediate international effect. In the EU the treaties are valid in all official languages. 3) Acts adopted by an International Organization : These are acts deriving from treaties establishing IOs. They are binding only if the treaty establishing the organisation says so. For the UN these are the security council resolutions. For the EU these are regulations, directives and decisions. For the WTO some agreements can be binding for all parties, some others are binding only for the parties who have accepted it , these are the plurilateral agreements. Lecture 2 - 29/2 Possible questions : - Difference between public and private international law - Who are international legal persons - What is customary law - What is the origin and effect of treaties, what is the xx of acts deriving from treaties coming from international organisations etc. International legal system (order) : How do different legal orders interact at the international level? We have private International law and public international law, which is binding with respect to both international organisations and States (any type of state, member or not). In this scheme international law binds both a state that is a member, but also a state that it is not. For example : The norms of WTO are binding with respect to the states that are members, but it may have other general international norms that bind WTO member states and non members. When we analyse the way in which the EU carries out its international commercial policies, on one hand it applies EU law, on the other end it must apply international law. The EU for example is a member of the WTO therefore it’s bound by the WTO obligations. On the other hand the EU in order to carry out its commercial policies, has to comply with the rules agreed with its member states in its own treaty. This allows us to understand how different legal orders interact at the international level. Each state (member or not) has its own legal order , all these must work together. When the international legal order originated in the 17th century we already had some legal order in place : the legal order of the State. (absolute state, absolute monarchy etc.). Therefore these states already had their law. But the need was to establish common rules binding for all the states. We are in front of a double system : this is the dualism between international and domestic law. Each system has its own rules which are binding to the system to which they belong (domestic). International legal norms are binding at international level. If the state breaches an obligation that is included in the treaty, other states may say : this is a violation of international law and you are considered responsible at the international level. Example : As a private citizen - I am in Italy (which is part of the EU treaty, of human rights treaty, and others) - may I invoke the right that these treaties provide for individuals? For instance may I invoke the right to freedom of speech (art 9) of the European convention of human right, within the Italian legal system? May I therefore invoke the norm of a treaty that Italy signed at the international level, at the domestic level? It is not possible, unless Italy has in some way incorporated these international laws within the Italian legal system. Incorporation : international norms are binding at the international level and only at the international level, unless the states adopt specific legislations to make these norms binding at the domestic level. If we look at the italian system, we can do this incorporation in two different manners : We can have a general norm ( art 10 of the constitution says that Italy is bound by general norms of international law → these are customary law. This means that every time you have an international customary law at the international level, this is immediately bound also in the italian legal system). One example is diplomatic immunity. Foreign diplomats for instance were driving drunk around Rome and they killed some people but they could not be brought in front of the italian court because of the diplomatic immunity international norm. In the case of international treaties, we then have specific norms: in this case the parliament adopts a Statute with the definition of the specific norm translated into the official Italian language. This Statute can be invoked by the private person. So, all in all the parts that can be incorporated in the domestic legal system are binding within the domestic legal systems. Hierarchy : In general theory of law there is a rule : following legislation prevails over preceding legislation (lex posterior principle). Assuming that I am the Italian parliament and have adopted this kind of aforementioned Statute (full effectiveness treaty). Let’s say one year later I adopt a Statute that says the exact opposite, that says people have freedom of speech as long as the speech is consistent with what the government believes. This is clearly a restriction. If I apply the lex posterior criterion to treaties that have been incorporated into the domestic legal system, I can easily breach them. Is this effective? You must look at the consequences. If you adopt legislation that allows you to breach international law, at the international level you are still responsible for the breach. You are not responsible at the State level. It means that the state may adopt this kind of legislation to be safe at home so people cannot invoke international treaties, or if they do, the recent legislation prevails. But you are breaching international law. So : at the domestic level the state may prevent the effect of a treaty, but not at the international level. Since the state is bound by the treaty, the treaty is still effective, so the responsibility of the state is still required. What is therefore the best solution? → It is to recognize international law as a priority on the domestic level. International treaties prevail on domestic legislation, even over following legislation. This is the only way to avoid international responsibility for a State (at the international level). Therefore in order to avoid this discrepancy between domestic and international, what is best to do is to establish that international treaties are also binding at the domestic level. They are hierarchically superior. Is iit possible to say that a source of law such a treaty is prevailing over other sources of law? Is it possible within the Italian constitution? No, unless you change the constitution. The Italian constitution is a rigid constitution. So there is a rigid hierarchy (primary source: Constitution; secondary: State legislation; third: regulations). In Fact the constitution was changed in 2001 → art 117 : treaties are a source in between constitution and ordinary legislation. So treaties are more important than ordinary legislation but the constitution is on top of the treaty. (Keep in mind : Customary law is within the Constitution). (Check Art 12 of the constitution). Responsibility : Since we have this dual system, it’s clear that when we talk about responsibility at different levels. We talk about international responsibility when this affects any State and any legal person who breaches international law. In order to have unlawful conduct in international law, you need two element : - Subjective element : The person who perform the illicit act - Objective element : The illicit act (what is an illicit act? When an act is illicit?) Consequences at the international level : Example : International obligation not to kill the heads of public state. Let’s say I am a private person and I kill Macron. Is this a breach of international law? No, as I am not an international legal person. → In regard to the subjective element, in order to have international responsibility, you need to have an international legal person. Who are those? States, international organisations, individuals (if he/she works on behalf organisations) or individuals only for international crime (such as genocide, torture). So the subjective element allows us to determine whether the breach is domestic or international. If I am a company I am still a private person, therefore I will not be considered responsible internationally → this is very important as in this case private subjects might have more power than governors (lobbyism). So sometimes States are weaker than private persons, this is a hoop in the law. → The objective element is a breach of international law. A wrongful act. For example: I, as a State, cannot occupy the territory of another state. What about if that State invites you over to protect the territory? In this case, is this a breach of law? No it is not. The act it is, but since there is a preclusion reason, this is no longer a wrongful act. So there is a subjective element and a behaviour that looks like a breach, but since there’s a preclusion reason, that breach is no longer a breach. Self defence also exists in international law (always about legal persons). In international law, with regards to self defence, you as a State cannot react in advance. Self defence happens only after the breach. The Articles on the Responsibility of States for Internationally Wrongful Acts (ARSIWA) include six circumstances precluding wrongfulness: consent, self-defence, countermeasures, force majeure, distress, and (state of) necessity. There are also two rules according to which precluding cannot be applied (consent, self-defence, countermeasures, force majeure, distress, and (state of) necessity) : 1) Proportionality 2) Compliance with Human Rights So the purpose of this conversation is : you need to have a breach of international law to have international responsibility, performed by an international legal person. Example : Even if I am a legal person (a State), I may act as a private legal person (buying properties), and I might in this case be subjected to private law. This is the problem with international trade, because some States may have international trade rules that are very developed and are more precise than international norms, but the problem is that those are only established by single states. Example : unfair practice → dumping. Some companies sell their production to a lower price abroad in order to favour the exports. In this case some states consider this practice unlawful. According to international law this is not unlawful. Therefore domestic procedures adopted to respond to dumping may even result in breach of international trade legislation. Consequences : What are the consequences according to international law? (Example of a country occupying another country’s territory). Reparation → you must repair the injury provoked , in this case restitution as it was before. Monetary compensation → If the territory has been destroyed In order to proceed with these resolutions, an agreement of the parties is needed. International law is quite archaic. There are some forms of reaction (for instance reprisal) which are allowed in international law (occhio per occhio). There are also countermeasures, like demonstration of disapproval (flag not shown, stopping diplomatic relations, unilateral sanctions, etc), which are considered lawful acts. Usually however, in international law reparation is the most common. In order to have effective reparation, states must agree, orelse the conflict will never end. Negotiation according to international law must lead to a solution. Dispute settlement : The dispute has to be resolved according to the dispute mechanism of international law, with the common objective of finding a solution. The majority of dispute mechanisms in international law though, are borderline. A State can be subjected to the authority only if that State accepts the competence of the court. For example, the International Court of Justice is the international tribunal of the UN. All states of the UN are bound by the UN charter and by the statute of the International Court of Justice but : Art 36 : “UN member states may be subjected to the jurisdiction of the International court of justice, if they accept its jurisdiction (very convenient)”. Some states have never accepted it (China). There are also cases in which you are bound to accept the court, but you may choose among four different courts. There are also two other important cases : WTO legal system : there is a dispute settlement mechanism that is compulsory. Members are obliged to go in front of the court. EU legal system : Something similar happens in the EU. There is the EU Court of Justice that will judge the member states. If we look at the dispute mechanism in international law, the disputes are bilateral. We have two or more States against each other. It is never the system itself to initiate a trial and to bring the unlawful in front of the court. There is no public control or intervention of the system. A compliance control is not in place. Conversely, States have it within their domestic system. Also in the EU, the EU Commission may bring the case against a State. In environmental law, some states are not compliant. In this case all the parties sit at a table and find a resolution. But this is not a dispute. Example : Nato against Serbia to protect Kosovo. The military action was not totally lawful. Serbia brought the case in front of the UN’s court. This had to be a dispute against each member of the Nato as the dispute could be only bilateral. Some states escaped the jurisdiction of the International court of justice, some others complied with it. If we look at the different mechanisms, these are : Diplomatic means : consultation, mediation, etc. Solution is not binding. Mediation: requires the entry of a third party, a mediator that tries to find a solution. Conciliation: there's a third party (an organ) that analyses the facts and then proposes a solution. Even in this case the proposal is not binding. It’s up to the states. Consultation: it comprises two parts. First is the ascertain, then the conciliation comes with a proposal solution. Judicial means: arbitration, international adjudication, they are binding Arbitration: system in which states decide and choose the judges and the applicable law and procedure. You need the agreement of the parties. Then the decision is binding. International adjudication: all the courts of justice are involved. So, the international legal system : It is an independent system that is primarily aiming at binding States to rules. It has independent rules, specific legal persons and specific instruments to resolve and settle disputes. International Organization: These are established by treaties and have their own legal system, which is only binding for the state parties of the organisation. 1) The European Union : The European Union originated in the 1950s. There were 3 organisations at the beginning : ECSC(1951): European Community of Coal and Steel → its life was set at 50 years. EEC (1957): The European Economic Community → it is the ancestor of the Union, to favour the economic development of Europe following WWII. EURATOM (1957): Organisation on European Atomic Energy → established in Rome in 1957 together with the European Economic Community. The organisations had their own organs representing the States, three Courts, etc. but in 1965 the Merger treaty established common organs. There were only 6 States at the beginning. In 1966 the nationalist DeGaulle requested the adoption of the Luxembourg accord, establishing as a condition the unanimity vote, preventing the adoption of a legal act if an issue was vital for the survival of the State. Unanimity was adopted. It worked up to 1986. During this time it was therefore almost impossible to adopt new legislation to regulate the function of the European community. There was in this time an organ “the EU court of justice” that was particularly effective. In 1986 the majority system was back with the European Single Act. In 1950 the European convention of Human Rights was adopted (5 years after the war), within the Council of Europe. Any person who feels their rights have been violated under the convention by a state party can take a case to the court. A first reference to the European Union arrived in 1993 with the Maastricht treaty. Why? The treaty was not only economic. The concept of the EU was adopted in order to protect human rights, environmental rights etc, and for common political purposes a more comprehensive system was needed. Lecture 3 - 1/3 International legal order : We can conclude that the international legal order is a legal system where the main actors are States. This is useful when analysing international trade law as this is a set of public international law, and so the main actors are states here as well. International Organisations : There are other actors that may originate new legal systems. These new actors are international organisations. They may have their own legal system, which is only binding for the state parties of the organisation. The European Union (international organisation) : The EU has : its own law, its own sources of law, legal system and legal organs, and the judicial power but at the same time this power is limited as a subjective scope of application, as powers of the EU may be only applied with respect to the Member States. Moreover the EU is also a member of the international legal system because the EU is a legal person, therefore it is subjected to international law. For example the EU is a member of the WTO. There is a general legal order and a specific legal order to which states or other international organisations belong because they accepted to. The EU originated in 1957 as the European Economic Community and if you compare the 1957 treaty to the current treaty on the functioning of the EU , these are almost the same. The evolution is that the EEC and the other communities were organised with the purpose of enhancing the economic growth of Europe and cooperation between states. Nevertheless in 1992 other interests came along. Particularly political interest. The EU was made by states that had common values since the 1950s. It was not a revolutionary concept (human rights and environmental protection → homogeneously shared). In 1989 the Berlin wall fell. This was incredibly important as the follow up was the end of the Soviet Union, the end of an established legal order that had existed since 1945 and that had brought the creation of the UN charter. At that time in fact, at the international level, the world was divided into two groups, the friends of the US and the friends of the Soviet Union. The EU had to make a choice about where to stand by. But in 1989 when one of the superpowers collapsed, it became clear that the EU could conquer also a role at the political level so it was necessary to have some common interest, not only at the economic level. So human rights were important, the environment, but also political matters. So in 1992 the Maastricht treaty was adopted and the concept of the EU was formulated. This was initially a concept. The EU was not an organisation. The organisation was still the Community. The idea of a Union started. The economic community was one of the objectives of the EU, but the other two were (the so-called three pillars) : - Internal market of the EU (same as 1957) - (this is new) Common foreign security policy - Cooperation in the field of criminal law (different cooperation from 1957) The EEC understood that in order to favour a real harmonisation of economic relations it was necessary to recognize the rights of private economic operators. This is because if you want to act to be a superpower you have to look also outside, not only internally in your territory. You have to look at your neighbours. You must have a wider approach, and this includes criminal law, in order to understand that a real comprehensive community must be created. Is criminal law treated the same in different countries? No. But we have procedural instruments that allow for instance a State to arrest the national of another state and decide where he/she would be incarcerated. (EU mandate). The EU established therefore some common rules in this regard, which are nevertheless only procedural (example bank accounts of oslo terrorists connection were frozen). What about the foreign policy of the EU? Example : about the Palestine crisis the EU voted 4 against, 13 in favour (of a resolution in favour of palestine), 10 abstained. It means that we still do not have a common foreign policy of the EU. Why? Because foreign rules are established according to this procedure which is the unanimity procedure, as opposed to the economic policy (majority). So in many treaties after the 1992 (Amsterdam, Lisbon, etc) we find that foreign policy is decided on the basis of the unanimity rule. (all 27 must agree). This is why there is no common position in foreign policy. After 1992 the two new policies (foreign and criminal) have been adopted but have not developed (except for the criminal-economic). At present we have two treaties that were adopted in 2007 during the Lisbon conference that entered into force in 2009 (when ratified). These abolished the European Community (the name). Since 2009 we have had the European Union. These two treaties(binding to all) are : the EU treaty (TEU) → treaty establishing the EU Treaty on the functioning of the EU (TFEU) (content the same of 1957) These are the maximum sources of law at the EU level. At present we have only two organisations : The EU EURATOM (riprendi da 26 minuti) Lecture 4 - 6/3 Acts deriving from the EU treaties : EU Regulation : it is binding and immediately applicable for everybody, even companies. Regulations have a general scope of application. They are immediately applicable because they do not need implementing acts from the states. Directives : who is bound by the directives? Not private persons. Private persons only bound by the domestic legislation. Directives are binding to States that must implement them. Decisions : These are binding and immediately applicable to the addressees. Who is the addressee in the example? Apple. It must immediately apply the decision. Even if you are a private person you must comply with the decisions. Regulations, directive and decisions, they established new obligations of EU law. ECJ legal actions: Within the European Union the European Court of Justice (the judge) ascertains whether or not EU law has been breached. This does not judge individuals. 1) The infringement procedure is the legal action brought in front of the Court by the Commission or by a Member State against another State violating EU law. The breach is ascertained at the EU level, by the ECJ. In the infringement procedure, if you look at the decision of the ECJ, this is usually “Commission against a State”. If you as a private person/company, consider that the state in which you are, is breaching EU law, you can go to the commission. 2) The review of legality : it is a procedure according to which some entity can claim that an EU institution does not comply with EU law. For example the EU commission adopts a decision which is in breach of the treaty. This regards therefore EU organs and States. Also private persons may bring the case before the EU court of justice against an EU institution, this is possible though in an exceptional matter : the private person has to demonstrate that it has been directly and individually affected by that act. When EU legal acts do not specify the assignee, they are not individually affecting a private person. This is for instance the case of regulations. In conclusion, private persons can never bring the case against regulation. (example of Codorgno , it won the case). 3) Failure to act : This is an omission of an obligation to act, established explicitly in a legal act. This is against an institution. You cannot consider the Council responsible if it does not adopt a legislative act. It is not an obligation to adopt a legislative act. If the Commission does not comply instead to a xxx, this organ has an omitting conduct. This may bring an action against this organ. Private persons must be the individual and direct addresses of the conduct (non-action) if the case has to be brought in front of the court. 4) EU Extracontractual Liability : it is an obligation of private law, in cases in which there are no contracts. For example if I drive and I destroy your garden, there is an economic damage and a breach of private law. In which case the EU may be affected by extracontractual liability? In the case in which its individual organs breach private law. For example : EU officer car accident. Extracontractual liability only exists when the organs of the EU act in the exercise of their EU functions. These actions are very rare. The most common legal action that brings the case in front of the EU court of justice : 5) Preliminary ruling : we said that the EU law is an independent legal system. What is the exact meaning of the norms of the treaty or directives, what is the organ that interprets EU law? This is the EU Court of Justice : this is the organ to which you have to bring the case in order to interpret EU norms. This is the case in which domestic judges ask the ECJ for interpretation oof EU law. When you are in a private dispute before a domestic judge, and the issue is the interpretation of EU law, it is up to the dometic judge to stop the procedure and appeal to the ECJ. A preliminary ruling that is very famous - in 1964 - Costa vs Enel case : this is the first case of supremacy of the EU with respect to domestic law. Supremacy : EU law is binding for member states and people. If you apply the rule lex posterior principle, according to which the subsequent norm prevails on the previous norm, we would have had different cases law. Therefore the principle of Supremacy fixes this issue by establishing the priority of EU law on domestic law. In order to be effective the EU legal order needs member states to implement EU legislation in their legal system. The constitutional court is the only organ in the Italian legal system that can say that a deed is wrong. So EU law, according to this, has the same importance as constitutional law. Is this possible? Article 117 of Ita Constitution : EU prevails over ordinary Italian law. 1) The Simmenthal case : cattles were imported from Argentina to France, and then Italy imported them from France. The Italian minister of finance established costly sanitary checks on each imported cattle. France did not agree on this measure. Consequence → The ECJ established the non application of conflicting domestic law. Meaning : if there is conflicting domestic legislation, that domestic legislation must be set aside immediately. 2) So the constitutional court of member states adopted specific rules, now reproduced in the Treaty of EU → it is the so-called Solange case resolved by the federal court of Germany. Domestic law is set aside only if EU law does not infringe fundamental constitutional principles of the domestic legal system. EU law prevails on ordinary domestic law, as long as EU law is consistent with the fundamental principle of the domestic legal law of each member state. This is the recognition of the limits of EU supremacy, as this is in the treaty. Direct Effect : EU law affirms some rules and obligations. Within the treaty there is a norm that says that States cannot establish custom duties. Van Gend and Loos case : I am a Dutch company importing german goods, and dutch legislation applies custom duties. This is a breach (art 28 of the TFEU). Here the dispute is between the Company and the Netherlands in front of a dutch judge. The argument of the State was : there is no obligation to apply EU law with respect to private persons (in this case the company). This argument is not acceptable. The ECJ recognized the principle of Direct Effect : when a norm included in the EU law is clear in its content, it is immediately applicable (unconditional) and it recognizes explicitly a right , the state is obliged to apply the norm even with respect to private persons. In this case the norm was clear, detained and unconditional and had direct effect, meaning that a private person may have invoked EU law in front of dometic court. May I invoke EU law against a private person? It depends on EU law. Yes, When a norm has an immediate and clear effect. Vertical effect → it happens when the direct effect is towards the state only (directives) Horizontal effect → it happens when the direct effect is with respect also to other persons (De fren case) Lecture 5 - 7/3 Attribution of competences When we talk about the parliament of a State, this can adopt legislation in any matter. For legislative organs of international organisations, their power is established in the Constitute treaty. This is the same for the EU. The EU is not allowed to apply legislative acts in any subject matter. For this reason we talk about the principle of attribution. The powers are therefore those which are attributed at the time of the treaty. The states attribute this. The principle of attribution is : Under this fundamental principle of European Union (EU) law, laid down in Article 5 of the Treaty on European Union, the EU acts only within the limits of the competences that EU Member States have conferred upon it in the treaties. If we look at the competences of EU, these are classified in a way that we find in the treaty, the categories are : Exclusive competences → those that only pertain to the EU. THe subject matter are trade (internal and external), customs*, monetary policy (ECB decides whether or not issuing new currency by the CBs), fisheries (fishery policy between UK and Spain was an issue). States may: Adopt legal acts on these subject matters only if they are authorised by the EU itself. They can also adopt legislation which implements EU norms. Shared competences → The EU and Member States share competences. There are policies which are not regulated within the treaty but these are relevant for the implementation of the norms of the EU. One example is the free movement of persons. Usually member states use these norms in a narrow way, but there are some rights that are not properly linked to labour law (healthcare, etc.), therefore social policies must be shared between the EU and member states. Same goes for the protection of the environment, which was not regulated in the treaty, but only in the European Single Act. For instance, thinking about the issue of free movement of goods, some goods can be detrimental for the environment. Goods cannot circulate if countries have different rules on the movement of goods related to environmental protection legislation. Therefore common rules are needed. Since this matter does not completely fall in the competence of the EU, at this point this competence must be shared. What can MS do with respect to shared competences? They can adopt legislation, until the EU adopts legislation. when the EU adopts legislation that is comprehensive, it leaves the legislation to the MS. They can adopt acts where the EU has not yet adopted acts. They can adopt acts if the EU has withdrawn its competence. Up to the mid 1990s, the EU had the possibility to extend its competences in the field of shared competences. During 1990s some restriction were established according to : - The principle of subsidiarity (only works with respect to shared competences) : according to this the EU cannot adopt legislation unless the action at State level is inadequate to reach a specific goal. In the case of transport pollution for instance, as this concerns other member states, the EU can intervene. - The principle of proportionality : this is a further limit which applies to all the powers of the EU. it means that the EU must adopt only those legal acts necessary to regulate a pacific policy. The principle of proportionality may be assessed according to the principle of xxx So, the EU cannot adopt any kind of legislation. Its legislative power is limited by the principle of attribution, subsidiarity, proportionality. Support , coordination or supplement competences → these are scarce competences. Primarily the EU adopts political acts or programs, acts, papers , that invite states to adopt legislation on these fields. One matter could be culture (erasmus program), or tourism and education. *NB : Free trade area → the states belonging to this area have abolished internal duties, but are allowed to have external duties which they themselves decide. Custom trade area → After 1972 the EU Community became a customs union. Type of cooperation in which internal boundaries are abolished, but in addition these states are not free to keep relationships with external countries. There are common custom duties. What about the EU outside the EU? The EU can be classified as an international organisation, with respect to all the countries which are not members of the EU. At the international level one of the main activities of the EU is the adoption of International treaties. The treaty establishing the organisation sets in fact the power of the EU to adopt international treaties. So we must look at the international legal system and the EU legal system ( 2 different systems). So the EU has power to adopt international treaties as this power is established in the 1957 treaty. In 1972 it became a custom union, so its power was also recognized at the external level. This means that the competences that the EU has at the domestic level, also existed at the international level. This rule is defined as parallelism, which is the principle according to which the EU has at the external level the same powers that it has at the domestic level. The exclusive competences in these case are : Trade in goods and services Commercial aspects of intellectual property (IP) Public procurement Foreign direct investments The shared competences are : Portfolio investment Cultural services IPRs Dispute settlement What happens with exclusive competences? Agreement is between the EU and the third country. This is binding (for EU member states and the third country). The EU acts as a common entity for the member states. What happens with shared competences? The EU can only adopt the legislation that is necessary. It is possible that states want to express their opinion by participating in the international treaty. The treaty is binding for the EU, the third country involved, and the 27 members of the EU. This is the case of the WTO. These are called mixed agreements. What are the agreements adopted so far by the EU? - EEA (European economic area) : free trade area in which the EU participates as a single entity together with Iceland, Norway, Switzerland etc. - Switzerland : it’s part of the Schengen agreement (common area of free movement of persons) - Deep and comprehensive free trade area (CFTA) (cooperation with Ukraine) : Participation in EU agencies Full access to programs such as Horizons - Custom Union (Turkey) - FTA (Chile and Mexico) - Partnership and cooperation agreements (Russia) Most favoured nation principle (no longer relevant after RRussia entered the WTO). - CETA : EU and Canada comprehensive economic and trade agreement The World Trade Organisation (WTO) The WTO was established in 1994. There was an agreement before, adopted after WWII in order to foster international trade at the global level. This was the GATT, in 1947. It was promoted by the US to favour the reconstruction of countries that were affected by war. It was a way to recognize the importance of the US. The US congress, however, did not accept the agreement. As the purpose was to facilitate international trade, the main obstacles were tariffs (custom duties, border charges). The goods become less competitive with tariffs. The main purpose of GATT was therefore the abolition of tariffs. The parties decided to negotiate the progressive reduction of tariffs, according to rounds of negotiation, during from 1947 to 1994. Once they agreed on this reduction (from 1947 to 1961), the countries decided to negotiate another impediment : the impediment of non-tariff barriers, meaning quantitative restrictions. This safeguarded domestic production. Non-tariff barriers are also regulatory restrictions, in this case for example if I establish some technical requirement, I allow import only of products with specific requirements. They are barriers and can seriously prevent international trade. This legislation has to be monitored strictly to see if there is a breach of WTO agreement. This was the Kennedy round. Another negotiation took place from 1973 to 1979 (Tokyo round) that also established a procedure of centralised dispute settlements. From 1986 to 1994 the Uruguay round started, leading to the establishment of the WTO. At this time the URSS was de-escalating with Gorbachev, so negotiation was easier. There was a common interest to have a more institutionalised structure. Within the WTO system we have several agreements regulating different aspects : - GATTS (multilateral agreements) - TRIPS (relating to property rights) - Plurilateral agreement : Only some parties take part in these agreements. For instance the Public procurement agreement. WTO functions Facilitating the implementation of the WTO agreement Providing a forum for negotiations Administering dispute settlement Administering the Trade Policy Review Mechanism Cooperation with the International Monetary Fund and the World Bank (achieving greater coherence in global economic policy-making) WTO members → The WTO comprises 164 members, both states and non-state parties (for instance the EU). → The participation of the EU is provided in art 9(1) of the WTO agreement. → The accession is the entry into the agreement. This happens through a process : - WTO members examine applicant’s report - Bilateral negotiation between each member and the applicant (these are bilateral) - Drafting of a protocol of accession with all the conditions on the basis of which, a state is accepted. There are almost no common obligations but in regards to im/exp each state has its own condition. - Final decision of the WTO members (unanimity) → Waiver (withdrawing) is possible according to art 9(3) of WTO agreement. It requires ¾ of majority. WTO organs Ministerial conference (164 members, representatives of state). This is the only organ with decision-making power. General council (implementation). Permanent organ made of state officers representatives Trade policy review body Dispute settlement body Specialised councils (GATS, TRIPS) supervising the implementation of specific agreements WTO secretariat WTO director general (political organ) Lecture 6 - 13/3 We have so far analysed what is the international legal framework and The European Union. How do the EU and WTO work together? WTO was established in 1994. Before that date, there was obviously no relationship. But the WTO is the evolution of the GATT agreement of 1947, 10 years before the European Community. So first we need to check the relationship between the Community and the GATT, and then the EU with the WTO. In 1957 six states decided to create the EEC. At that point this was a free trade area, an area that had abolished internal boundaries and custom duties. At the same time in the GATT there was an important rule established in art1 : The most favourable nation principle (MFN) to ensure non-discriminatory trade between all partner countries. How could a community be created where states have a strong cooperation among themselves? Did this breach art1 ? There is another art in the GATT that guarantees cooperation, but only according to GATT rules. In 1972 a new event occurred. The ECommunity became a custom union. Not only had it abolished custom duties, but now also custom duties with third countries (external tariffs). The members of the GATT decided therefore to negotiate with the Ecommunity even though this was not a part of the GATT. From a very practical point of view, all negotiations were dealt by third countries and the ECommunity. Sometimes if you are a private person/company you might have advantage to import from xxx, rather than from EU countries. In this case the preferential treatment that the EU recognized to this country, is a disadvantage for you. So you may bring the case and say that the legislation of the EU is in breach of the GATT obligations. There are only 2 cases in which GATT obligations are relevant, to EU law: here the EU law refers to GATT regulation (Fediol Case, Nakajim case). The ECJ is not in favour of recognizing the binding character of GATT obligation. In 1994 the EU became a member of the WTO. At this point the EU was bound. However the Council aborted the agreement established by the WTO specifying that GATT obligations do not have direct effect and are not completely binding, as they required bilateral negotiation. So it was not clear how the EU wanted to be bound to WTO obligations. In one case (Portugal vs Council Case 1999) ECJ declared Gatt obligations are not binding as there is no reciprocity. In another case the EU was sentenced by the dispute settlement body because it had some preferential agreement concerning trade in bananas. It was considered in breach of WTO. Nevertheless the ECJ affirmed that private persons couldn’ t be involved in the case. So in a final decision (2012 SCF case - copyright) the ECJ finally recognized that WTO must be used as interpretative norms in respect to EU legislation. Therefore being binding as an interpretative instrument of EU legislation → So WTO rules have the status of interpretative instruments. (We are concluding the topic on the functioning of international law). EU law is in between international and WTO law. Check the scheme for tomorrow. The principle of parallelism : EU has at international level same competences at the European union level (exclusive and shared). EU substitute member states only with respect to exclusive competences. The TRIPS is binding for EU member states and EU as an organisation, however commercial aspects fall into EU, while intellectual property and rights, falls in the member state jurisdiction. So (according to the scheme) EU member states respond to obligations as well as to the WTO obligations. WTO substantive rules Gatt was established in 1947 and has very basic rules. Amongst these, the most important rules are : Prohibition of discrimination : International trade must establish obligations common to everybody. 1) Non-discrimination can be affected as a breach of the most favoured nation principle (MFN). 2) It can also be affected as a breach of the national treatment principle (NT). This is a domestic discrimination. Foreign products must be treated as domestic products. MFN Art1 GATT Let’s assume we have two products of two foreign countries. How can I, as a State, discriminate between two foreign countries? This happens for instance when I apply for different duties. This affects both import and export. It may also happen with the method of levying, or rules and formalities applied. According to the MFN principle any advantage that another state may have, must be recognized in favour of any other country, immediately and unconditionally, with respect to like products. So we have to understand in this context : → Measures : these are state measures. If I am a private company and I prefer to buy Argentinian apples instead of Chilean apples, nobody can say anything. The countries Argentina and Chile can be scrutinised instead. The measures can be: border measures → application of custom duties or charges. internal measures → method of levying, meaning imposing a tax, and rules and formalities. WIth the method of levying I can pay online, rules and formalities could be certifications etc. An important principle regarding measures is that what is relevant is the consequences on competitive opportunities, not the intent. (de jure (explicit discrimination) and de facto discrimination). So when we are going to look at the discriminatory character of a measure, we have to look at the effect, not at the intent of the measure. This has an impact on competitiveness and on competitive opportunities of foreign states. But if a nation subsidies its production this is not a breach. So for instance, if Italy supported domestic production through favouring domestic state products, in this case it is not a breach of the MFN. When the action is applied by public policy subsidy, it is justified. → Advantage : the advantage is any advantage for any product. What is relevant is that if there are more favourable opportunities, these must be exactly the same for all. It is not possible to make a balance. You must ensure advantage immediately and unconditionally. → Like products : these are not equal products. The MFN principle does not only apply to the same products. You must look at characteristics that are similar. The criteria to assess similarities are based also on Consumer taste ( example banana luxury product in Italy). It’s not possible to presume likeness. You must ascertain and analyse it. Criteria for assessment : ⁠Physical Characteristics End use ⁠Tariff regime : when we apply custom duties, these are done according to categories and this helps assessing similarity → Immediately and unconditionally accorded : According to the GATT system this means instantly, and that no condition may be established. It is necessary to establish exactly the same conditions. However some adaptation may be necessary. Sometimes applying the same rule generates discrimination. You need tools to grant the same competitive opportunities. For instance potential disadvantages might be already in place for certain countries. In this case it is needed to demonstrate the damage or negative effect on trade that a rule could bring. Exceptions In 1979 a special rule was adopted unanimously. In this year more countries, that did not exist at all before, participated in the WTO. So at this stage, some states were not in an equal position. Special treatment should be therefore ensured for these states, this is the enabling clause ( Same legal importance as the GATT). This says that : The obligation provided for in art 1 of the GATT (MFN) may be violated in favour of developing countries which can have preferential tariffs. The special treatment aims at promoting trade, not at raising barriers. It cannot be an impediment to the reduction of tariffs The possibility of modifying is allowed Procedure condition : When a state wants to recognize a preferential treatment to another country, it must inform the WTO. States may establish some additional preferential treatment that doesn't only concern tariff and custom duties, but also method of payments, etc. it does not mean that this preferential treatment can generate advantages to single developing countries. Same treatment with respect to all developing countries. The EU used to conclude cooperation Al agreement only with some developing countries that provoke damage to the others. It was sentenced by the GATT system. Lecture 7 - 15/3 The main purposes of the GATT and WTO is to abolish discrimination within the member states. Most Favoured Nation (Art1): is the first way in which the principle of non-discrimination is applied. It is a prohibition of discrimination. This principle concerns foreign products of two different countries. National Treatment Principle (Art3): according to this principle states parties to the GATT must apply internal taxes, charge, regulation in a manner that does not entail the protection of domestic production. So foreign products that are already in the market passing through the borders cannot have protectionist effects. This principle concerns foreign and domestic products. If we look at the norms of art 3 , there are two types of relevant measures : taxation measures and regulations. The purpose is to avoid protection of domestic production. National treatment Principle : The products of the territory of any contracting party imported into the territory of any other contracting party shall not be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products. Moreover, no contracting party shall otherwise apply internal taxes or other internal charges to imported or domestic products in a manner contrary to the principles set forth in paragraph 1 Art3 distinguishes between the application of the national principle in the case of taxation, and in the case of regulation : Regulation may concern the characteristics of a product, the safety of a product, etc. Taxation concerns the product as such. There is also a further distinction : regarding taxation, we have a differentiation between different types of products. Taxation : Internal taxes cannot be contrary to the principle set forth in paragraph 1 (the protection of domestic production) and cannot be applied on imports in a manner contrary to pgph1. So taxes cannot be in excess of those applied to domestic products with respect to like products. In the case of non-like products, taxes do not have to foster protectionism (on the slides the part in green concerns like products). Internal taxes : it means any type of payment required with respect to foreign products. These can affect the products, not individuals and can be : indirect → Indirect taxation in the case of NTP concerns taxation taking into account foreign and domestic products considering also the components (raw materials). Indirect taxes therefore affect the components of the product. direct → Direct taxation instead affects the product as a whole. Like products When you must ensure the same treatment, the concept and interpretation of like products has to be very narrow. We mean two products that are perfectly substitutable. There are two elements to take into account : Objective element → concerning the physical characteristics Subjective element → perception of the customer You cannot consider like products to be as such, if they don’t have the same perception (thè and coffee are not alike). Taxed in excess If two products are very like products, it’s clear that taxation must be the same so to have the same impact on the product. The concept of “in excess of” means that the impact must be almost null. It also entails the method of application, so any type of disadvantage generated by the excess. When we talk about domestic and foreign products though, we must look at “de jure” and “de facto” differentiation , as these products can't be taxed in the same exact way. So I treat them in the same manner, but have to look at the detrimental effect. The system has to ascertain if the impact of taxation to be applied, generates damages or advantage. Foreign products have to have the same opportunity as domestic products, but if you treat them equally, it might be that they still are at a disadvantage. You can’t compensate a discrimination with compensation in another field, because the purpose of the GATT is to abolish trade barriers. Tax in excess of has a very strict meaning: you must ensure the same competitive opportunity and must look at the impact at the competitive opportunity for any like product. So when we talk about taxation and Like products, the national treatment must ensure the same competitive opportunity and access to the market. The pink text in the slides says : “moreover no contracting parties…In a manner contrary to the principles set forth in paragraph one”. There are some cases in which two products are not a perfect substitute. For instance beer and wine. But their use may be the same if the advertising allows that kind of perception. These products are therefore considered competitive products, but not like products. Competitive products : Potentially they could substitute each other, but are not perfect substitutes. (cheap wine and beer). In this case according to a note added to art 3 parg. 2 : …..If these are not similarly taxed. So we must look at the type of internal taxation and at the concept of competitive products and “similar taxation”, which is different in scope. It is necessary to ascertain the fact that the protectionist effect does not exist, otherwise we have a breach. What is relevant to understand if two products are competitive, you must look not at the physical characteristics (not objective element) but at the perception, as a criterion (subjective element). So we have the same use, the same characteristics etc, but a different perception (people buy beer if in the UK, cheap wine if in Italy). As criteria, we also must consider the channels of distribution and the tariff classification. For example if I allow the selling of a pharma product straight at the counter , compared to a pharma product which requires the doctor recipes, you have differences in internal regulation, and this changes the perception and opportunity of the second product. So with competitive products, taxation cannot be dissimilar. Some differences are allowed even with respect to the impact. It must be analysed on a case-to-case basis. The GATT and WTO want to abolish any type of barrier, also the de facto barrier. If we look at dissimilar taxation in comparison with “in excess of”, the first is less strict. You may allow some differentiation, some disadvantage. Prohibition of the protection of the domestic production : When you ensure the treatment according to the rule of like product, prohibition of the protection of the domestic production is already included. With respect to competitive products instead, this is not entailed, it must be ascertained. Therefore you must look at how the measures are, and are applied. It is not necessary to have damages, it is enough to have lack of opportunity. Neither is important to have the intent. Sometimes states do not want to be protectionists, but they are in the effect. So with competitive products we have to look at : - Definition (achieved looking at the subjective element) - Dissimilar Taxation (does not have to be completely equal) - This dissimilarity does not have to entail a protectionist effect, even if this is not in the intent. Internal regulation : There are also other types of legislation other than taxes, that might affect and endanger the non-discriminatory effects of the MFN and NT principles. According to this art3 paragraph4, the products imported, shall be accorded a treatment that is no less favourable of those of domestic origin. In the case of regulation the concept are : What are regulation What are like products What does no less favourable treatment means Regulation concerns state measures affecting the products. If I am a foreign producer and sell apples at 4 €, when i enter a country , i will sell them at 5 €. This is not taxation, this comes from the rules that establish that minimum price. You provoke this domestic protectionism. Lecture 9 - 28/3 We have so far analysed the two main principles leading the GATT and the WTO : - Most favoured nation - Nation treatment Now , we have to analyse another important issue. As we mentioned, the initial negotiation within the GATT concerned: the rounds about tariffs, this is because the main obstacle to international trade at the time was tariffs. So the GATT system’s concern was tariff and their regulation : The tariff is a financial charge on imported or exported products due to their importation or exportation, so they correspond to an amount of money that you pay because you import or export a good. We can therefore consider them custom duties, therefore : border charges. What is their purpose? → financial incomes for the government → protection of domestic production : Foreign products become more expensive, this is the case of tariffs on imports. Regarding exports, I want to keep the products within domestic production. Both tariffs protect domestic production. How do we assess the amount of a tariff? → There are different ways to calculate tariffs. We may have a general instrument, the “ad valorem” method/tariff, based on the value of the good (the market price). This is a percentage. → There are also “non-ad valorem criteria”. Such as : - Specific tariff based on the amount (weight or length) of the good - Compound method : this puts together two methods : the specific and the ad valorem method. So first I assess the value on the base of the amount, and then I look at the price of the amount. - Mix method : established a maximum and minimum tariff. In this range the State might decide to apply the tariff. - Technical method : based on the components (raw materials of a specific product). For example jewellery. These are different methods that the States can choose from. They usually apply different methods with respect to different goods. If we look at the import tariffs applied within the WTO system in the international framework, we have the following structure of categories : 1) The most favourite nation duties : we apply this among the WTO members (all). 2) The preferential duties : these are for developing countries 3) No-WTO duties : applied to all states not part of the WTO. Who decides which are the tariff, the goods, the categories of goods? Each country has its own national custom tariff document. However this is not individual, it does not decide national rules solely. This document , which includes the list of goods and corresponding tariff, is based on an international system called : harmonised commodity description and coding system, (in short : harmonised system - HS). In order to establish an appropriate tariff therefore, we need to know in which country the product would be better commercialised. First we need to classify the good produced Second we must assess the custom duties (tariff) that will be applied to the good. Then the definition of the origin of goods Remember though that each state can negotiate specific conditions with each member of the WTO, it is possible therefore to have special agreements (bilateral) negotiated at the WTO entry time. This means that the same good may be subjected to different tariffs, depending on the country where it comes from. This is not a breach, this is the condition of bilateral negotiation. The origin of the good therefore is essential to ascertain which relationship I have with that state and therefore which tariff I must apply. If a State wants to enter the WTO, it must negotiate its condition with each member of the WTO. This falls into the concept that International law is mainly a voluntary - based system. To think that the EU strictly obliges states to do something is unusual. Classification of goods : States are obliged to apply an international system. The document includes norms coming from the organ established in 1952 → Custom cooperation council (this is a separated international system, but the states party to the GAAT decided to adopt it). The 1952 system adopted a convention called HS (1983). Here we find the category of goods which are the tariff categories. This system evolved in a separate organisation in 1994 : the World Custom Organization. This also is outside the WTO. The WTO accepts the condition established by the HS convention. Goods are classified according to the categories of HS convention. Valuation of custom duties : - Art VII GAAT - 1994 customs valuation Agreement - The transaction value (price) is the evaluation. What about if a transaction value does not exist? - Alternative method : Let’s say I have never imported this good, and the exporter does not know how to establish the value. In this case I may find different methods to assess the value of the good. I may look for similar goods for instance. If there are no similar products , I can use the deductive methods, according to which I will look at the types of goods that the importer usually imports and I will classify that good according to those transaction values. If the importer is a new import, I will assess the transactional value according to the exporter prices (computed value method). Finally, if also the exporter is new, there is the fallback method possibility, according to which I must look at the State of import and its legislation because at the end the goods will be commercialised in the import state. This list is hierarchical. These are the methods to assess the transaction value and calculate the custom duties of import tariff. Definition of the origin of the goods : Another important issue is the assessment of the state of origin. To define the origin of the goods is not that straightforward nowadays. Especially for electronic devices. In order to assess this, we have some rules established by the 1994 (time of the establishment of the WTO) Agreement on the rules of origin. The agreement distinguishes between : Non-preferential duties : MFN principle applies (equal conditions, equal ordinary duties) Preferential duties : Annex II The criteria to assess the origin are : - I have to look at the country in which that good has a value added. Let’s think about a jewel made in Morocco. When the raw gold becomes a jewel, this becomes more expensive (manufacture). Then the jewel gets branded in France (Chartier) so it doubles its price. The value added stands therefore in France, because it is when it’s branded that the value gets added. - Change in tariff classification : you move for instance from raw material (silk in china) to clothes (made in india). So if there are different tariffs applied, the relevant state is the state in which the goods were manufactured. - Finally the Qualifying Process : if you consider that you are importing orange juice, the important place is where orange is produced or manufactured or packaged? It is where the orange becomes juice, so that is the state of origin. All states agree on these criteria. Is it possible for states to apply other charges or custom duties are the only allowed chargers? - According to ART(II)(B) GATT States can apply extra charges, but this has to be established on a case by case basis : Other charges cannot be in excess of lawful duties. The interpretation of this norm took 45 years, when a specific agreement of this norm was adopted: the “Understanding on According to ART(II)(B) GATT” in order to avoid exploitation of this article. So the condition is : this extra charge must be provided in the schedule of the document. So each state has its own good schedule with the conditions according to which you may or may not apply custom duties. New charges are only allowed if they already exist in this good schedule. The extra charges may not go beyond a certain threshold established in the schedule. These conditions establish therefore the obligations. Exemptions (ART II (2)) : There are cases in which States may avoid the obligations of the GATT. These concerns : Internal taxes (including border tax adjustment) Anti-dumping → dumping is unfair practice according to which a state sells its products in a foreign market at a price which is lower than the domestic price. In this case the other countries will apply mechanisms such as the anti-dumping duties. In this case these are out of the concept of tariff. Cost of services → another charge that you may pay with respect to the imported goods, is the cost of a service. This may be regulated according to the non-tariff rules. Export Tariffs : The first rule that must be complied with, is the MFN principle. Meaning you may apply export duties, but these must concern and be addressed to all. These types of duties and tariff were not particularly welcome, infact the original participants to the GATT decided to reduce them and cancel almost all of them. Although some states which entered the WTO recently (China and Russia) insisted on adding some export duties with respect to raw material. The other states objected but they were obliged to accept. In particular the EU found this against the spirit of WTO. The export goods schedule includes concessions and bindings. These are those conditions according to which a State is bound with respect to the xxx. → Concessions : allowed conditions of import (according to which other state allow import in their territories) → Bindings : maximum limit of applicable tariffs (according to which countries are subjected to the same concession and binding) According to WTO and the GATT, a member country has the purpose to reduce these tariffs. Rules : Reciprocity MFN No reciprocity for Developing States The conditions to establish Concessions and Bindings are negotiated in different manners. Initially this happened on a product by product basis. (bilateral negotiation). The Kennedy round adopted the linear approach. All products were taken into account. During the Tokyo round we went to a non-linear approach, whereby products were considered on a sectoral basis. In this case the negotiations were multilateral. The Uruguay round led to the establishment of the WTO. In this case it was necessary to regulate tariffs affecting agricultural rules. During this round a specific rule was adopted to reduce existing tariff at 36% average, to a minimum reduction of 15%. Finally when the WTO was established and it developed its functioning, a new formula was suggested by Switzerland : a maximum rate of tariff should be fixed and all states should commit to reduce the gap between different tariffs. Lecture 10 - 03/4 TARIFF BARRIERS Tariff concessions and bindings : We said that tariff barriers are custom duties applied to goods. Before the WTO establishment, states negotiated bilateral conditions that are reflected in the schedule of concession. Each state has its own concession and bindings. Concession → conditions that a state ensures Bindings → maximum limit that a state might apply In 19xx multilateral negotiation started. The main instrument to look at when importing : MFN concessions Preferential concession Concessions and non tariff measures Special commitments on domestic support and expert subsidies to agriculture What are the general rules affecting concessions and bindings of a tariff? 1) Each state must ensure a treatment to the other states no less favourable than the one provided in the schedule. (ART II (1)(A). So the treatment must be no less favourable, applicable to all. 2) The concessions provided for according to the MFN principle, are extended from other duties with respect to those established in the schedule. (ART II (1)(B). So to all WTO members with exception of the developing countries. Is it possible to modify concessions and bindings? Yes, according to art XXVIII. There are the INR → initial negotiating rights states. (direct beneficiary) There are the PSI → principal supplying interest states. These states export the same products of the INR and want to enjoy the same condition. (potential beneficiary) There are the SI → Substantial interest states, which came along in 1994. These are not direct beneficiaries, are not potential beneficiaries, but they might be impacted in the future. (affected) All these groups could be involved in the negotiation of the modification of the schedules. If the negotiation does not end well, states may withdraw their conditions (freedom of withdrawal right). At the same time, even if you have the right to withdraw, you may damage other states, therefore you may be brought in court. Tariff barriers are taken into account only with respect to goods. They are not applied to services. So they are only provided for in the GATT and not in the GATTS. Non-tariff barrier Another impediment to trade are : non-tariff barriers. These are restrictions that are not duties or other charges. They may occur by means of quotas, licences or other measures. So they are all those state measures that have an impact on import/export of goods. A typical example : Quantitative restrictions → provided for in domestic legislation, that establishes Bans Quotas Licensing These are particularly unwelcome by the WTO. States are obliged to inform WTO secretariat about the existence of provisions with these restrictions. A quantitative restriction may be enforced by : Legislation administrative acts There may also be “de facto” restrictions. What is relevant here is the effect : the prevention into a country of a specific good. In regards to quantitative restrictions to export there is an exception : the case of shortage of food stuff or other products. (that was the case with the pandemic. This was a voluntary restriction not to face shortage of essential products). These restrictions are not appreciated as mentioned within the WTO. The system has attempted to reduce them in particular in agriculture → there was a rule that wanted to transform quantitative restrictions into tariffs. This is because tariffs do not block commercialisation. In 1994 Agreement on Agriculture → transforming existing quotas in tariffs : Tariffication → transforming quotas into tariffs (custom duties) to favour the possibility of commercialization of agricultural products Tariff quotas → those tariffs that are applied by reason of the quantity of the product imported/exported. In 1994 Agreement on textiles and clothing → this agreement was the start of the elimination of quantitative restriction on textiles. In 2004 these were all abolished. A particularly unwanted practice is the voluntary export restraints → meaning, in a bilateral agreement, I accept (voluntarily) to restrain my export. This practice generates damages. The problem is that the parties signing these agreements are unbalanced in terms of power. A party may be obliged because it is weaker. In theory they are free but if their market completely depends on another market, there is no real freedom. This may provoke abuses. Therefore this sort of agreement has been prohibited in the Agreement on Safeguards by 1999. What are the fundamental rules regulating quantitative restrictions? 1) No discrimination : You may apply quantitative restrictions, not in a discriminatory manner. 2) I must ensure the distribution of trade. I must ensure that with my q. restrictions i am not disadvantaging no states with respect to others. (MFN principle). 3) When the restriction is due to licensing, I must follow a specific agreement. 4) I must recognize the principle according to which developing countries must be treated differently. What is the import licensing agreement? This was adopted in 1994 when the WTO was established, according to which the procedure of import licensing must be clear, patented and easy : → automatic licences : are those granted immediately. → non-automatic licences : states might establish requirements. You might need a special certificate, or technical characteristics. So you need to demonstrate these requirements. It is clear that these requirements must be objective (non-discriminatory) requirements. Other non-tariff barriers : 1) There is an obligation of transparency (Art10 GATT), the lack of which may bring a non-tariff barrier. (If you do not know which are the rules according to which you may export a product to a country). States must notify the exporters by : Publication Notification Enquiry points Review → which means that, if I export my product and its commercialization for whatever reason stops, I have the right to go in front of the judge to defend my position and the right for my product to be commercialised. 2) Arbitrary application of measures art X(3) GATT 3) States must be informed about custom formalities 4) Government procurement → this is a non tariff barrier. In 2014 the plurilateral agreement on government procurement (non applied to all) according to which you may apply gov. Procurement and favour your domestic production or the production of a state, but not in a discriminatory manner. You must have the same conditions, which must be well scrutinised. Non-tariff barriers apply to services too. Services are regulated in a very limited manner. Usually states are quite free to regulate services. However in this regards, the GATTS provide some measures that are prohibited : → quantitative restrictions : Limited number of suppliers. Applicable to services and service suppliers. If there is a limit of suppliers for instance this is a limit that is not acceptable. (this is very relevant in financial services). The transaction value Number of operations (important to bank services) Number of employees Amount of foreign capital invested → this restriction is very welcome from States. These are domestic measures : Discriminatory and non-discriminatory measure Fundamental rule artXVI(1) GATS → no less favourable treatment than that provided for in the schedule. So WTO States are obliged to ensure certain conditions, only to the exception cases provided for in the service schedule. From the 1960s GATT member states had multilateral negotiations with respect to tariffs. But in regards to services, we see that these commitments started in 1994. Some guidelines (not binding) were adopted, to invite states to find common rules. We have horizontal commitment in these schedules (that regards all services) and sectoral. So we see that in this case the negotiation of the condition is less regulated than in the case of traded goods. When we talk about the modification with respect to goods, there were some categories of States that should be consulted. This is not the same with respect to services. States only have the obligation to notify the council on trade in services (the organ that supervises the function of the GATS). The only rule that states must ensure when they apply with respect to quantitative restriction to services is the MFN principle. As mentioned, there are other non-tariff barriers established in respect to services : Lack of transparency for instance. Arbitrary application of measures art VI GATS. The main impediment in the field of service supply is the licensing requirement. We need in this case a special licence which is also accompanied by a diploma (recognition of diplomas). In this case the limit is the application of the MFN principle as to the access to the selection. Among other non-tariff barriers applicable to service, we also have rules concerning : → the Government Procurement : this is still regulated by the bilateral agreement → you might subject some services to monopolies to exclusive service suppliers. In this case you may discriminate but you must ensure the MFN principle. → restrictions on international payments. However when there are risks concerning the balance of payment within a country, in this case an exception is allowed : the balance of payments exception. For the exam : - MFN principle - National treatment principle (goods, and service) → taxation and regulation of similar and competitive goods - Tariff barriers and how they are applied and calculated and distinguished. Classification of goods, etc - Non-tariff barriers - General exceptions General Exceptions : ART20 GATT When you negotiate a treaty you need to have an escape. This is Art.20 of the GATT which is a general exception which applies to all the nodes of the GATT and that allow the breach to the obligations of the GATT. The cases in which an exception occurs are established in an exhausted list (cannot be extended). The exceptions need to be interpreted in a narrow manner. They can also be interpreted in an evolutionary manner. These norms also require a double check. Art20 applies also to other agreements of the WTO. The article is divided in two parts : 1) Chapeau 2) List of hypothesis Lecture 11 - 04/4 - registrata In the List of hypotheses all the special circumstances are listed. It is not possible to opt out of the hypothesis. Art.20 the hypothesis distinguishes the one conditioned of necessity and not. The condition of necessity established stricker requirements in order to apply an exception (stricter than the ordinary). In this case the interpretation is even narrower because of this condition. You must look at the level that you want to ensure and to the fact that this specific method is capable of achieving the goal. Then you have to balance the interests, at that point you may adopt a measure, which must be the only one that allows you to reach the purpose. For instance the protection of human and natural life (Art.20b), in this case this is the main purpose for which the state may adopt legislation. The purpose must be very clear in the domestic legislation. The condition of necessity obliges states to adopt legislation that is the only possible and necessary to achieve the goal, in this case the protection of human and natural life. In this specific case you have to first of all at the hypothesis, then at the fact that the domestic legislation must be designed for the purpose (you must infer from the content of the legislation , that this is aimed at protecting human and natural life). Third you have to assess that this is the only and necessary legislation for the purpose. So a state may adopt restrictive legislation in order to safeguard a superior interest only if that is the only possible instrument to achieve that purpose. By human and natural life we mena the health of human beings but also animals, considered also as an economic value and therefore used for economic purposes. During the 70s a new concept has arisen, which is the concept of environment and the fact that this needs to be safeguarded. This is the approach adopted by the GATT now. Continua registrazione Lecture 12 - 05/4 When you deal with international trade the main rule is : the prohibition of any discrimination. There should be global rules in order to favour the development of international trade. So the question is : is it lawful to have some stronger cooperation among some states? Or, is creating an organisation that provides better rules that only affect certain states (of WTO and GATT) a breach of the MFN principle? In theory this is a breach. Nevertheless there are types of cooperation that are allowed within the GATT itself. Art 24 of the GATT concerned regional exceptions. This article, set up in 1949 (there was no European Community at the time) allows to have regional cooperation between states party to the GATT. Regional cooperation entails stronger cooperation between states belonging to the same geographic areas. This type of cooperation is regulated in the GATS, adopted in 1994. However the global political setting changed during the 1960-70s and new states arose, states that used to be colonies of the western countries. These states wanted to have stronger relationships with colonial countries. In this case you could not claim for a regional proximity, but other types of reasons. This agreement could not ensure reciprocity. So starting from there, the idea of having preferential agreements with developing countries took place. The enabling clause rule decided that preferential treatment was recognized with developing countries. So Since 1969 the enabling clause has legally allowed preferential trade agreements in which developing countries have better treatment. Now this clause has been added as a rule of the GATT. The WTO has for this established a system of control in order to ascertain regional trade agreements and preferential agreements established according to the Art24, are consistent with the WTO rules. ART24 of the GATT is the legal source of the agreement. Paragraph 5 → It established 3 forms of cooperation allowed. 1) Custom union 2) Free trade area 3) Interim agreements This rule was interpreted in 1994 by a special act : “the understanding on article 24”. This understanding establishes that states are free to adopt regional and preferential agreements, but these cannot raise barriers to states that are not party to the agreements. So they must favour the relationships between the parties but cannot disadvantage the other WTO members. 1) Custom union : it must comply with two paragraphs of art24 : 8A and 5A. Necessity must be interpreted as : the measures adopted are the only ones possible to achieve a specific purpose, in this case to establish the custom union. What is a custom union? According to letter A of paragraph 8 of art.24 a custom union is an area in which all internal duties are abolished (substantially). Moreover, the same duties are established, with respect to parties that are not parties of the regional agreement, but they are part of the GATT. One example is the European Union → this is a custom union since 1972. The obligations for the states that decide to establish a custom union are (Art 5) : - You cannot adopt external tariffs higher than the ones existing before the formation of the custom union. - Modification of the schedule : in this case you must negotiate the changes. If these are not agreed by third parties, you must establish compensatory adjustments - Compensatory adjustments : you have to arrange for the losses of third party countries. So the measures adopted for a custom union must be the least restrictive measures possible. (could be a question for the exam : what is a custom union and its conditions). 2) Free Trade area : (paragraph 8 and 5). We assume that the concept of necessity here is the same as the one found before. A free trade area is an area in which substantially all internal duties are abolished. You do not have internal duties therefore. The US-Canada-Mexico agreement is a free trade area, or the European Free Trade Area, involving Norway and Iceland. They are nevertheless free to establish their own external duties. All custom unions are also free trade areas, but not the other way round. The custom union requires to have common external duties. Since interna duties are abolished, it is not possible to worsening the conditions of third countries by raising tariffs with them. So, each member of a free trade area has its own tariffs with respect to third countries, but this cannot be raised as an effect of the free trade area. 3) Interim agreements : these are preliminary agreements necessary to establish custom unions or free trade areas. They have a temporary effectiveness, until the custom union and free trade area are established. They cannot last more than 10 years. According to the GATT regional trade agreements are those establishing cooperation within states with geographic proximity. In 1979 the enabling clause was established and it establishes preferential treatment with respect to developing countries In 1999 a further rule was established : the waiver from Art I of the GATT, applicable to least developed countries. (At I of the GATT establishes the MFN principle). A further rule was adopted in the 2005 Hong Kong round which says that industrialised countries will abolish duties and quotas with respect to least developing countries, and that they still apply with respect to WTO members. Enabling clause : WTO states may recognize a preferential treatment which entails the adoption of regional and global agreements with respect to developing countries. This agreement however must have the objective of facilitating trade. Relationships with other industrialised countries cannot be worsening. For this reason no reciprocity is allowed. Reciprocity is the rule according to which if I conclude an agreement, I have 5 and I give 5 to the other party. (objected to the same obligations and same rights). In the case of preferential agreements only developing countries have rights. In the regional agreements you instead have the same treatment. As reciprocity is not allowed, equally it is not allowed for industrialised countries to seek special concessions (which are conditions of trade between two states reported in the goods schedule) and contributions. There must not be trade advantages for industrialised countries. Conditions of the waiver from art 1 GATT : - The waiver means the withdrawal, the non-application of art 1 of the GATT. This article contains the MFN principle, therefore the waiver countries are not bound by the principle of the MFN. This waiver is an obligation for developed states. While the developing countries may decide whether or not to apply the waiver with respect to the least developing countries. In 2005 duties and quotas were abolished with respect to the least developed countries. This was an obligation only to industrialised countries. Regional exceptions in the field of services (Provided for in art 5 of the GATT) : These agreements are allowed and must have the objective to facilitate trade among the parties and cannot raise barriers with respect to the states that are not party to the agreement. (for instance the CITA between EU and Canada). These measures must be consistent with the GATS. The restriction in adopting these agreements are : - Cannot concern all services, but must affect an entire sector. So an entire sector must be covered. By looking at the number of services that are regulated, I can see if the sector is regulated by these agreements. You must also look at the volume of trade regulated by the agreement. Also the method of supply must be looked at. States that want to adopt regional agreement on services must regulate at least an entire sector. This agreement (regional exception) is aimed at substantially eliminating discrimination by abolishing barriers and not establishing new ones. Labour agreements (art 5 bis GATS) : These regional exception agreements may also concern the regulation of the labour market and labour conditions. So access to the market for instance. The art5bis says that you may adopt labour market agreements which must abolish substantial and procedural requirements. You have the obligation to inform the council on trade and services. Differential treatment : Is it possible to treat developing and least developing countries better in the field of service? Yes but there are no special conditions. The GATS only provides flexibility, but does not specify what kind of flexibility. If there are industrialised countries, these are not economic integration agreements. In this case all states have advantages (reciprocity). What is important is to look at the nationality of the people enjoying the agreement. Procedures of RTA : Once the rules have been established, there is a supervisory mechanism of regional trade agreements : 1) The states that want to establish CU, FTA or IA, should notify the council on Trade in Goods or in Services. Today, a new organ that is called the RTA Committee is the one supervising all the agreements adopted according to art24 of the GATT and art5 of the GATS. (2006 Doha) Regional trade agreement transparency mechanism : it is the procedure to have a regional trade agreement consistent with art24 of the GATT or 5 of the GATS. This procedure is : - States who want to do a RTA send notification to the RTA committee. This notification goes to the secretariat that sets a document that specifies the conditions that states want to follow to establish the regional agreement. - The committee analyse the report and decide whether this is consistent with art24 or 5. - If accepted, there is a database publicly available (RTA database) So the agreement is lawful after the approval. The dispute settlement mechanism is always applicable to these agreements if the way these are enforced are in breach of the GATT. Enabling Clause procedure : From 1995 the committee on trade and development is in charge. In 2006 also the establishment of the transparency mechanism (2006 doha) was extended: - Notification - Consultation - RTA database Same procedure for the waiver and duty free and quota free market agreements. Conclusion - Positive effects : The fact that regional and preferential agreements are allowed consists of an advantage for the development of trade. By means of these agreements that abolish barriers, the increase of trade volume was significant. Expertise in negotiation for developing states and least developing states increase. Conclusion - negative effects : You prevent the establishment of common global rules. But these are not welcome anyways by all states. The WTO does not want to leave the system completely free (transparency mechanism and other guidelines). The main instruction of the 2016 systematic implication on multilateral trade systems is that regional and preferential agreement must be consistent with the purpose of the WTO and the participation of WTO should be favoured. Lecture 13 - 12/4 Balance of Payment

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